No, says the U.S. Court of Appeals for the Tenth Circuit in In re Cowen, adopting the minority rule and parting ways with four other Courts of Appeals.

The doctrine of substantive consolidation (generally- the power of a bankruptcy court to consolidate the assets and liabilities of affiliated entities in bankruptcy) is a recognized remedy exercised by bankruptcy courts – one that strikes fear into the hearts of many lenders. Justifiably so. The doctrine can be employed to order the substantive consolidation of related-debtor entities in bankruptcy and it can also be employed to substantively consolidate the assets of a debtor in bankruptcy with those of a related entity that is not a debtor in bankruptcy.

In a 2-1 opinion, the Second Circuit overruled the district court in Marblegate Asset Management LLC v. Education Management Corp., finding no violation of the Trust Indenture Act (“TIA”) in connection with an out-of-court debt restructuring.

Background

This is the third in a series of articles highlighting the changes to be brought in by the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 (Amendment Ordinance). Since our last article, 13 February 2017 has been announced as the date when the Amendment Ordinance will come into effect. The Amendment Ordinance makes amendments to the Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO) and the Companies (Winding Up) Rules (CWUR).

The European Commission (EC) announced proposals on 22 November 2016, which are intended to harmonise national insolvency laws across the EU through a proposed directive “on preventative restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures” (Directive). The Directive will need to be passed by the European Council and European Parliament. Then, EU Member States would be required to adopt the Directive’s provisions into their respective national laws within two years from the date of its entry into force.

The Barton doctrine (named after the U.S. Supreme Court case Barton v. Barbour, 104 US 126 (1881)), generally prohibits suits against receivers and bankruptcy trustees in forums other than the appointing courts, absent appointing court's permission. It applies to suits that involve actions done in the officers' official capacity and within their authority as officers of the court.

Circuit held that when a chapter 11 debtor cures a default under its loan agreements, the debtor is required to pay default interest as required by the loan documents, rather than at the non-default rate.

In Princeton Office Park, the U.S. Court of Appeals for the Third Circuit affirmed the bankruptcy and district court rulings that the purchaser of a NJ tax sale certificate forfeited its claim and lien because it included the premium it paid to the State when it purchased the tax certificate.

In Re Hin-Pro International Logistics Ltd, CACV 54/2016, the Court of Appeal upheld the Court of First Instance (CFI) decision that the courtdoes have jurisdiction to grant leave to amend a creditor’s winding-up petition, to include debts accruedafter its presentation. The company had been granted leave to appeal the CFI decision to enable the Court of Appeal to consider whether the rule in Eshelby v Federated European Bank Ltd [1932] 1 KB 254 (the Eshelby Rule), still applied.

This is the second in a series of articles highlighting the changes to be brought in by the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 (Amendment Ordinance), which was gazetted on 3 June 2016 and will come into effect on a date to be appointed by the Secretary for Financial Services and the Treasury.